Elon Musk is the opposite of a safe bet, this portfolio manager says

Tesla Inc’s (NASDAQ:TSLA) share price may have rebounded over the past month, but the company is just not the kind of stable, profitable business that should attract investors, says David Fingold of Dynamic Funds, who claims the automotive sector itself is also looking pretty dismal.

Tesla’s stock has surged over the past few weeks, going from a low of US$274 in late May to yesterday’s high of US$373, even as the negative press surrounding CEO Elon Musk and his company seemingly keeps building. A new video is now making the rounds of a Tesla Model S bursting into flames on the highway, meanwhile, Musk has reportedly sent an email to his employees accusing one of them of sabotage related to fires at the company plant.

More to the point, Tesla is highly leveraged with an estimated US$10 billion in debt and, to some, little sign that profitability is around the corner. Moreover, Musk has gained notoriety for declaring that innovation shouldn’t take a back seat to the quest for profits, a position that Fingold says may gain you disciples but won’t look good on a balance sheet.

“In Tesla’s case, this is a company that needs to raise capital frequently [and] has no aspiration to generate free cash flow,” says Fingold to BNN Bloomberg. “Mr. Musk has actually made fun of the concept of sustainable competitive advantages. He’s made fun of the moat around the business. That makes him the opposite of the kind of manager that we would entrust our capital to.”

“Can he win? Of course, he can win. He’s very innovative, and if he can raise enough capital, he can succeed,” he says.

Last week, in an effort to cut costs Musk announced that his company would be shedding several thousand jobs, which the CEO says will help simplify Tesla’s management structure.

“As part of this effort and the need to reduce costs and become profitable, we have made the difficult decision to let go of approximately 9 percent of our colleagues across the company,” says Musk in an email to employees. “These cuts were almost entirely made from our salaried population and no production associates were included, so this will not affect our ability to reach Model 3 production targets in the coming months.”

Fingold adds that apart from Tesla’s own situation, the automotive sector in general is now a suspect place to put your money.

“The [Seasonally Adjusted Annual Rate] is 16 or 17 million vehicles and I could argue that maybe it should be 18 or 19 million, but it’s not like we’re having this conversation seven or eight years ago when the SAAR was down below 10 million and the only direction for vehicle builds was up,” he says.

“I’m not sure that at these levels of automobile production that I want to be gambling on volumes moving up,” he says. “During the next recession, I’m sure I’ll take a hard look at auto companies, because the build will be way down and people will say that it’s never going to come back again and that will create an opportunity. But right now, no autos for me.”

About Jayson MacLean

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.